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Jul

2022

A Beginners Guide to Index Fund Investing

By Carla Tardi | Growing Wealth, invest, Investing | Comments Off

Index investing is a passive investment strategy in which, typically, you buy and hold assets for the long term. As such, index investing has become a popular addition to retirement vehicles, like 401(k)s and 403(b)s. With index investing, instead of purchasing individual stocks, you buy an index — an exchanged traded fund (ETF), or a mutual fund that represents a particular market sector (technology, for instance) or a broad benchmark, like the S&P 500 index.

Index investing seeks to replicate the performance of the sector or benchmark it follows. Because this product is already composed of the companies or sectors whose performance it aims to mimic, once you purchase an index fund, there’s not much trading going on; it’s already set up to perform in line with its index. As such, it’s considered passive investing — a buy-and-hold play.

On the other hand, an actively managed fund is guided by a professional portfolio manager (PM), who makes decisions based on their experience and knowledge. Rather than wishing to generate returns in line with a sector or benchmark, actively managed funds seek to beat the market. They appeal to those who want to make a profit in the near term by outperforming the market. In an effort to do so, PMs watch their funds’ underlying assets carefully and may adjust their holdings aggressively, or as needed to beat the market.

We’ll come back to active versus passive investing later.

There are many ways to approach investing. Some require a significant amount of time and involvement, while others need less effort on your part. It’s important to be aware of your objectives and tolerance for risk, so you can choose which types of investments fit with your goals and are in line with your temperament.

In this article, we discuss the nature of index investing, its potential advantages and disadvantages, and how best to use this strategy.

What Are Index Funds?

An index fund is a type of mutual fund or exchange traded fund (ETF) that tries to track the performance of a specific broad sector of the market — like technology — or a market index — like the Standard and Poor’s (S&P) 500. The idea is to try to replicate the chosen benchmark’s performance as closely as possible. Because index funds seek to replicate an index as closely as possible without trying to change it, you may hear people refer to indexing as being passive.

There are index funds for the U.S. bond market, the U.S. stock market, international markets, and others. Index investing is the process of investing in these index funds.

How Do Index Funds Work?

An index fund is a mutual fund or ETF that aims to mimic the overall performance of a particular market. The fund includes multiple stocks or bonds and is bought and sold like it’s a single investment. Index funds follow a benchmark index, such as the S&P 500 or the Nasdaq 100.

When you put money in an index fund, that cash is invested in all the companies that make up the particular index, which adds more diversity to your portfolio than if you were buying individual stocks. The S&P 500 is one of the major indexes that tracks the performance of the 500 largest companies in the U.S. Investing in an S&P 500 fund means that your investments are tied to the performance of a wide range of companies.

Because the goal of index funds is to mirror the same holdings of whatever index they track, they are naturally diversified and thus generally have a lower risk profile than do individual stocks. Market indexes tend to have a good track record, too. Though the S&P 500 certainly fluctuates, historically, it has historically generated an approximate 10.5% average annual return for investors; from its inception in 1957 through 2021. Just remember that — as with all investments — future returns are not guaranteed.

Index Investing vs Active Investing

Active investing typically involves in-depth research into each stock purchase, as well as regularly watching the market in order to time buys and sells. Passive investing strategies either aim to bring in passive income or to grow a portfolio over time without as much day-to-day involvement. Index investing is a passive strategy which looks to match the returns of the market it seeks to track.

Index investing is a form of passive investing. Index investors don’t need to actively manage the stocks and bonds investment as closely since the fund is simply copying a particular index. This is why index funds are known as passive investing — and it’s what sets them apart from mutual funds.

Mutual funds are actively managed by portfolio managers who choose your investments. The goal with mutual funds is to beat the market, while the goal with index funds is to match the market’s performance. Because index funds don’t require daily human management, they have lower management costs (called expense ratios) than mutual funds. The money saved in fees by investing in an index fund instead of a mutual fund can save you lots of money in the long term and help you to make more money.

A common strategy for many investors who have a long investment horizon is to regularly invest money into an S&P 500 index fund and watch their money grow over time.

Growth of Index Investing

Index investing started in the 1970s, when economist Paul Samuelson claimed that stockpilers should go out of business. Samuelson believed that even the best PMs could not usually outperform the market average. Instead of working with portfolio managers, Samuelson suggested that someone should create a fund that simply tracked the stocks in the S&P 500.

Two years later, struggling firm Vanguard did just that. The fund was not widely accepted, and neither was the concept of index funds. Index investing has only become widely popular in the past two decades as data continues to reaffirm its merits.

Index investing has been gaining in popularity in recent years. Since 2010, actively managed funds have dropped from comprising 75% of all mutual fund assets to just 51%, as passively managed funds have grown to 49%. It’s reached the point where some industry observers may believe that the craze for passively managed index funds could even be dampening capitalism’s greatest innovation driver: competition.

Popular Indexes Include

• S&P 500 Index

• Dow Jones Industrial Average

• Russell 2000 Index

• Wilshire 5000 Total Market Index

• Bloomberg Barclays Aggregate Bond Index

Popular Index Funds Include

• Vanguard S&P 500 (VOO)

• T. Rowe Price Equity Index 500 (PREIX)

• Fidelity ZERO Large Cap Index Fund (FNILX)

• Standard and Poor’s Depository Receipt (SPDR) S&P 500 ETF Trust (SPY)

• iShares Core S&P 500 ETF (IVV)

• Schwab S&P 500 Index Fund (SWPPX)

Potential Advantages of Index Investing

The popularity of index investing is well-founded, as it has a number of benefits.

Can Be Easier to Manage

It might seem as though active investors would have a better chance at seeing significant portfolio growth than index investors, but this isn’t necessarily the reality. Day trading and timing the market can be extremely difficult, and may result in huge losses or underperformance. Active investors might have one very successful year, but the same strategy may not work for them over time.

Some individual investors who are not professionals just don’t have the time to learn the ins and outs of financial markets, let alone stock picking. Further, taking a hands-off approach to investing could eliminate many of the biases and uncertainties that arise in a stock-picking strategy.

Empirical research consistently demonstrates that index investing tends to outperform active management over the long term. Boston financial services market research firm, Dalbar, Inc., confirms that the average investor consistently earns below-average returns. For instance, for the 12-months ended Dec. 31, 2021, the S&P 500 posted a market return of 28.71%, while the average equity fund investor returned 18.39%.

SoFi users can take advantage of index investing by setting up an automated investing strategy to rebalance and diversify portfolios.

Lower Cost of Entry for Multiple Stocks

If you only have a small amount of money to start investing, and you choose to invest in individual stocks, you may only be able to invest in a few companies. With index investing, you gain access to a wide portfolio of stocks with the same amount of money.

Also, index investing doesn’t necessarily require a wealth manager or advisor — you can do it on your own. The taxes and fees tend to be lower for index investing because you make fewer trades, but this is not always the case. Always be sure to look into additional fees and costs before you make an investment.

Portfolio Diversification

One of the key tenets of smart investing is diversifying your portfolio. This means that rather than putting all of your money into a single investment, you divide it up into different investments. By diversifying, you may lower your risk because if one of your investments loses value, you still have others. At the same time, if an investment significantly goes up in value, you still typically benefit.

Index funds give you access to numerous stocks all within a single investment. For example, one share of an index fund based on the S&P 500 can give you exposure to as many as 500 different companies for a relatively small amount of money.

Index Investing Is Fairly Passive

Once you decide which index fund you plan to invest in and how much you will invest, there isn’t much more you need to do. Most index funds are also fairly liquid, meaning you can buy and sell them relatively easily when you choose to.

Potential Disadvantages of Index Investing

Although there can be upsides to investing in index funds, there can also be downsides and risks to be aware of.

Index Funds Follow the Market

Index funds track with the market they follow, whether that’s the U.S. stock market or another market. So, if the market drops, so does the index fund that’s trying to replicate that market’s performance.

Index Funds Don’t Directly Follow Indexes

Although index funds generally follow the trends of the market they track, the way they’re structured means that they don’t always directly track with the index. Because index funds don’t always contain every company that’s in a particular index, this means that when an index goes up or down in value, the index fund doesn’t necessarily act in exactly the same way. This is why it’s important to understand how specific index funds seek to track their underlying index.

Index Investing Is Best as a Long-Term Strategy

Because index funds mostly track the market, they do tend to grow in value over time, but they are certainly not get-rich-quick schemes. Returns can be inconsistent and typically go through upward and downward cycles.

Some investors make the mistake of trying to time the market, meaning they try to buy high and sell low. Investing in index funds tends to work the best when you hold your money in the funds for a longer period of time; or if you engage in as in dollar-cost-averaging. Dollar-cost-averaging is a method of investing the same amount consistently over time to take advantage of both high and low points in market prices.

Choosing an Index to Invest in

The name of a particular index fund may catch your eye, but it’s essential to look at what’s inside an index fund before investing in it. Determine what your short- and long-term goals are and what markets you are interested in being a part of before you begin investing.

There are both traditional funds and niche funds to choose from. Traditional funds follow a larger market, such as the S&P 500 or Russell 3000. Niche markets are more focused and may contain fewer stocks.

They may focus on a particular industry. Typically, a good way to start investing in index funds is to add one or more of the traditional funds first, then add niche funds if you feel strongly about their growth potential.

Index Funds Are Weighted

Depending on which index fund you invest in, it may be weighted. For example, the S&P 500 index is weighted based on market capitalization, meaning larger companies like Amazon and Meta (formerly Facebook) hold more weight than smaller ones.

If Meta’s stock suddenly goes down, it may be enough to affect the entire index. Other indexes are price weighted, which means that companies with a higher price per share will be weighted more heavily in the index. Another form of index weighting could be equal-weight or weights determined by other factors, such as a company’s earnings growth.

Less Flexibility

If you actively invest in individual stocks, you can usually choose exactly how many shares you want to buy in each company. But when you invest in index funds, you have less flexibility. If you’re interested in investing in a particular industry, there may not be an index fund focused solely on that.

How to Get Started With Index Investing

To invest in an index, investors typically purchase exchange traded funds that seek to track an index. Some funds include all the assets in an index, while others only include certain assets.

Prior to investing in any index fund, be sure to look into the details of how the fund works. You can find information about what is contained in the fund, how it is weighted, its fees and quarterly earnings, and other details on the fund’s website. You also can get that data via a financial advisor, or from the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) , which the U.S. Securities and Exchange Commission (SEC) oversees.

Alternatives to Index Investing

Despite the fact that index investing has grown in popularity over the past two decades, some analysts are now bringing up additional downsides and alternatives that investors may want to consider.

The stock market includes companies from many industries, some of which investors are moving away from investing in. Oil and gas companies, pesticide companies, and others — which some people could consider harmful to the environment or human populations — may be included in an index fund. As the economy moves away from these industries, these types of companies may not perform as well, and as an investor you may not want to support them financially.

Some new index funds are being formed around the principles of sustainability and positive social impact. You may also be interested in impact investing and other types of ETFs and mutual funds that focus on specific industries that affect society positively.

Building Your Portfolio

Whether you’re interested in investing in index funds or in hand-selecting each stock, it’s important to keep track of your portfolio and current market trends.

Once you know what your investment goals are, the SoFi Invest online investing platform can be a great tool to build your portfolio and track your finances. And, as we discussed above, with SoFi Automated Investing, you can easily add index fund ETFs to your portfolio, all on your phone if you choose. The automated investments are pre-selected for you, so you simply need to decide which funds to invest in, and how much you want to invest. Or, if you prefer to hand-select each stock in your portfolio, you can use the SoFi Active Investing self-directed brokerage platform.

SoFi has a team of credentialed financial advisors available to answer your questions and help you reach your goals. You only need a $1 to get started.

Find out more about how you can use SoFi Invest to meet your financial goals.

FAQ

What happens when you invest in an index?

When you invest in an index, you’re investing in not one stock, but in a collection of stocks (or other asset types, like bonds). The number of assets in an index can range from the tens to the hundreds. And they usually have something in common, be it their capitalization (large or small cap); their sector (tech or healthcare), and so on.

Are indexes safe investments?

Investing in the capital markets always entails a degree of risk; there are no guarantees, and no investment is 100% safe. That said, investing in an index fund can entail less risk than owning a handful of individual company stocks because index funds are diversified. That doesn’t mean you can’t lose money, but an index generally fluctuates a lot less than an individual stock. Index funds are only as stable as their underlying index.

What does index mean in investing?

In investing, the term “index” refers to the basket of assets (stocks, bonds, etc.) that comprise an index fund.

Photo credit: iStock/PixelsEffect

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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Jul

2022

Should You Open a Joint Brokerage Account?

By Michael Flannelly | Family Finances, invest, Investing | No Comments

Determining whether to open a joint brokerage account with another person, whether a romantic partner, business associate, or relative, can be a difficult decision. Couples often use joint brokerage accounts to simplify household finances and build wealth together. However, this doesn’t mean they are suitable for everyone.

Two or more people may own and manage joint brokerage accounts. These accounts are used to combine investment activities with multiple people. But before investing together using a joint brokerage account with a spouse or partner, it’s essential to understand how joint ownership works and its potential impacts on your finances.

Investing Together

The reason many couples decide to invest together is fairly simple: they live together, manage a household, and are planning a future together. It can make sense then, not just from a financial perspective but for a healthy relationship, to invest together to build wealth for future goals.

If you’re planning for these long-term financial goals together, like retirement or buying a house, then that might mean having a joint brokerage account in order to plan for your shared desires. But that doesn’t mean couples have to invest together; it could make sense for you to share some accounts as a couple and to keep some separate.

But opening a joint brokerage account and investing together can also be practical in terms of financial returns. Combining your money to invest can potentially help your money grow faster than if investing individually; as you invest a larger pool of funds, the gains can accumulate and go further as you benefit from compounding returns.

💡 Wondering about compounding returns? Here’s our investors guide to compounding returns.

What Is a Joint Brokerage Account?

A joint brokerage account is a brokerage account shared by two or more people. Couples, relatives, and business partners typically use joint brokerage accounts to manage investments and finances together. However, any two adults can open a joint brokerage account.

Joint brokerage accounts typically allow anyone named on the account to access and manage its investments. There are multiple ways people can establish joint brokerage accounts, each with specific rules for how account owners can access funds or how the account contents are handled after one of the joint holders passes away.

In contrast, retirement accounts like 401(k)s or individual retirement accounts (IRAs) do not allow joint ownership, unlike many taxable brokerage accounts.

Advantages of Joint Brokerage Accounts for Couples

There are several advantages that couples may benefit from by establishing and using joint brokerage accounts.

Single Investment Manager

One person can be responsible for all of the investment decisions and transactions within the account. This can be useful when only one member of a couple has interest in managing financial affairs.

💡 Recommended: Should I Hire a Money Manager?

Combined Resources

As mentioned above, combining resources can be beneficial as investment decisions are made with a larger pool of money that can be used to increase compounding returns. Additionally, combining resources into a single account may help reduce costs and investment fees, as opposed to managing multiple brokerage accounts.

Simplified Estate Planning

A joint brokerage account can simplify estate planning. With certain types of joint brokerage accounts, the surviving account owner will automatically receive the proceeds of the account if one account holder dies. This significantly simplifies estate planning and may allow the surviving account holder to avoid a costly legal battle to maintain ownership.

Challenges of Joint Brokerage Accounts for Couples

There are a few challenges that come with joint brokerage accounts for couples.

Transparency and Trust

Both parties who own a joint brokerage account need to be comfortable with the level of transparency that comes with shared ownership. This means that both partners need to be comfortable with sharing information about their investment objectives, financial goals, and risk tolerance.

Additionally, owners of a joint brokerage account must trust one another. Because the other account holder is an equal owner of the assets and can make changes to the account without your permission, they can make unadvised investment decisions or empty out the account without your consent.

Breaking Up

It’s important to remember that a joint brokerage account is a joint asset. This means that if the relationship ends, the account will need to be divided between the two parties. This can be a complex and time-consuming process, so it’s important to be sure that both partners are prepared for this possibility.

Tax Issues

If you open a joint brokerage account with someone other than a spouse, any deposits you make into the joint account could be deemed a gift to the other account holder, which could trigger gift tax liabilities.

💡 Recommended: A Guide to Tax-Efficient Investing

Things to Know About Joint Brokerage Accounts

Before opening a brokerage account with a partner, business associate, or relative, it’s important to understand the differences between the types of accounts.

There are several types of joint brokerage accounts, each with specific nuances regarding ownership. If you are planning on opening a joint brokerage account, pay close attention to these different types of ownership so you can open one that fits your particular circumstances.

Type of Account	Ownership	Death of Owner	Probate Treatment
Tenancy by Entirety	Only married couples can utilize this type of account. Each spouse has equal ownership rights to the account.	If one spouse dies, the other spouse gets full ownership of the account.	Avoids probate.
Joint Tenants With Rights of Survivorship	Each owner has equal rights to the account.	If one owner dies, the ownership interest is passed to surviving owners.	Avoids probate.
Tenancy in Common	Owners may have different ownership shares of account.	If one owner dies, the ownership share passes to their estate or a beneficiary.	May be subject to probate court.

Ownership

How the ownership of a joint brokerage account is divided up depends on the type of account a couple opens.

• Tenancy by Entirety: If the couple is married, they can benefit from opening an account with tenancy by the entirety. Each spouse has an equal and undivided interest in the account. It is not a 50/50 split; the spouses own 100% of the account.

• Joint Tenants with Rights of Survivorship: This type of joint account gives each owner an equal financial stake in the account.

• Tenancy in Common: A joint brokerage account with tenancy in common allows owners to have different ownership stakes in the account. For example, a couple may open a joint account with tenancy in common and establish a 70/30 ownership split of the account.

Death of Owner

When an owner of a joint brokerage account passes away, their share of the account may pass on to the surviving owners or a beneficiary, depending on the type of account.

• Tenancy by Entirety: If a spouse dies, their ownership stake passes on to the surviving spouse.

• Joint Tenants with Rights of Survivorship: If one owner dies, the ownership interest is passed onto surviving owners.

• Tenancy in Common: If one owner dies, the ownership share passes to their estate or a beneficiary.

Probate Court

In many financial dealings, it can be challenging to determine who owns what when someone passes away. These questions are often brought into the legal system, with probate courts often resolving issues of ownership for financial accounts and property. This can also occur with joint brokerage accounts, depending on the type of account a couple may open.

• Tenancy by Entirety: This type of account avoids the need for probate court, as ownership stays with one spouse if the other spouse passes away.

• Joint Tenants with Rights of Survivorship: This type of account avoids the need for probate court, as ownership interest is passed to the surviving owners when one owner dies.

• Tenancy in Common: In this type of account, if one owner passes away without a will or a state beneficiary, their ownership share will likely have to pass through probate court.

However, regardless of the type of joint brokerage account, if all owners of an account pass away at the same time, the assets in the account may still be subject to probate court if a will does not clearly state beneficiaries.

Tips for Opening a Joint Brokerage Account

Here are some tips that couples may consider before opening a joint brokerage account with a spouse or partner. These tips apply to almost everything; in the end, it’s all about communication and compromise.

• Decide on your investment goals for your joint brokerage account upfront. That means deciding what you want to build wealth for, like a house, vacation, or retirement. This can also mean determining how much money you may be willing to set aside for investing.

• Having goals for your joint brokerage accounts is advisable, but it’s also acceptable to have individual financial goals as long as you’re on the same page. You can set aside some of your discretionary income, like 1%, for each of you to spend as individual fun money. Some couples may also maintain smaller separate accounts in addition to your joint accounts.

• Take a long view of your joint financial goals. While you may disagree about buying a new couch or how to remodel a kitchen, you should agree on when you want to retire.

• Establish a system for resolving disputes before you get started investing. Even in the healthiest of relationships, there are bound to be disagreements. Before you open a joint brokerage account, decide how you will resolve disputes about whether to invest in one asset or rebalance your portfolio.

The Takeaway

Just because you’re in a relationship doesn’t mean you have to open a joint brokerage account with a partner. For some couples, combining finances to build wealth for shared goals makes sense, while other couples may benefit from keeping money issues separate from one another. What matters most is determining what’s best for you and your partner, whatever that may look like for your specific financial needs.

If you’re ready to open a joint brokerage account, SoFi can help. With SoFi Invest®, you can open a joint automated investing account with a partner. SoFi automated investing builds a portfolio for you based on your financial goals with no SoFi management fee.

Ready to get started investing as a couple? Learn more about joint brokerage accounts with SoFi Invest

FAQ

Can couples open a joint brokerage account?

Yes, couples can open a joint brokerage account. However, couples are not the only people who can open a joint brokerage account. Any two people, like relatives or business partners, can open joint accounts.

What are the benefits for couples opening a joint brokerage account?

The benefits of opening a joint brokerage account for couples are that they can pool their money and resources to make investments, and they can also make joint decisions about how to manage the account.

How can you start a joint brokerage account?

There are a few ways to start a joint brokerage account. The most common way is to go to a broker and open an account together. Another way is to open an account online.

Jul

2022

10 Options Trading Strategies for Beginners

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

While the options market is risky and not suitable for everyone, these contracts can be a tool to make a speculative bet or offset risk in another position.

Many option strategies can involve one “leg,” meaning there’s only one contract that’s traded. More sophisticated strategies involve buying or selling multiple options contracts at the same time in order to minimize risk.

Here’s a guide that covers 10 important options trading strategies–from the most basic to the more complex and advanced.

10 Important Options Trading Strategies for Beginners

When trading options, investors can either buy existing contracts, or they can “write” or sell contracts for securities they currently hold. The former is generally used as a means of speculation, while the latter is most often used as a way of generating income.

Here’s a closer look at important options strategies for beginner, intermediate and more advanced investors to know.

Long Calls
Long Puts
Covered Calls
Short Puts
Short Calls or Naked Calls
Straddles and Strangles
Cash-Secured Puts
Bull Put Spreads
Iron Condors
Butterfly Spreads

1. Long Calls

Level of Expertise: Beginner

Being long a call option means an investor has purchased a call option. “Going long” calls are a very traditional way of using options. This strategy is often used when an investor has expectations that the share price of a stock will rise but may not want to outright own the stock. It’s therefore a bullish trading strategy.

Let’s say an investor believes that Retail Stock will climb in one month. Retail Stock is currently trading at $10 a share and the investor believes it will rise above $12. The investor could buy an option with a $12 strike price and with an expiration date at least one month from now. If Retail Stock’s price rises to hit $12 within a month, the value or “premium” of the option would likely rise.

2. Long Puts

Level of Expertise: Beginner

Put options can be used to make a bearish speculative bet, similar to shorting a stock, or they can also function as a hedge. A hedge is something an investor uses to make up for potential losses somewhere else. Here are examples of both uses.

Let’s say Options Trader wants to wager shares of Finance Firm will fall. Options Trader doesn’t want to buy the shares outright so instead purchases puts tied to Finance Firm. If Finance Firm stock falls before the expiration date of the puts, the value of those options will likely rise. And Options Trader can sell them in the market for a profit.

An example of a hedge might be an investor who buys shares of Tech Stock C that are currently trading at $20. But the investor is also nervous about the stock falling, so they buy puts with a strike price of $18 and an expiration two months from now.

One month later, Tech Stock C stock tumbles to $15, and the investor needs to sell their shares for extra cash. But the investor capped their losses because they were able to sell the shares at $18 by exercising their puts.

3. Covered Calls

Level of Expertise: Beginner

The covered call strategy requires an investor to own shares of the underlying stock. They then write a call option on the stock and receive a premium payment.

The tradeoff is that if the stock rises above the strike price of the contract, the stock shares will be called away from them, and the shares (along with any future price rises) will be forfeit. So, this strategy works best when a stock is expected to stay flat or go down slightly.

If the stock price of Company Y stays below the strike price when the option expires, the call writer keeps the shares and the premium and can then write another covered call if desired. If Company Y rises above the strike price when the option expires, the call writer must sell the shares at that price.

4. Short Puts

Level of Expertise: Beginner

Being short a put is similar to being long a call in the sense that both strategies are bullish. However, when shorting a put, investors actually sell the put option, earning a premium through the trade. If the buyer of the put option exercises the contract however, the seller would be obligated to buy those shares.

Here’s an example of a short put: Shares of Transportation Stock are trading at $40 a share. An investor wants to buy the shares at $35. Instead of buying shares however, the investor sells put options with a strike price of $35. If the shares never hit $35, the investor gets to keep the premium they made from the sale of the puts.

Should the options buyer exercise those puts when it hits $35, the investor would have to buy those shares. But remember the investor wanted to buy at that level anyways. Plus by going short put options, they’ve also already collected a nice premium.

5. Short Calls or Naked Calls

Level of Expertise: Intermediate

When an investor is short call options, they are typically bearish or neutral on the underlying stock. The investor typically sells the call option to another person. Should the person who bought the call exercise the option, the original investor needs to deliver the stock.

Short calls are like covered calls, but the investor selling the options don’t already own the underlying shares, hence the phrase “naked calls”. Hence they’re riskier and not for beginner investors.

Here’s a hypothetical case: Investor A sells a call option with a strike price of $100 to Trader B, while the underlying stock of Energy Stock is trading at $90. This means that if Energy Stock never rises to $100 a share, Investor A pockets the premium they earned from selling the call option.

However, if shares of Energy Stock rise above $100 to $115, and Trader B exercises the call option, Investor A is obligated to sell the underlying shares to Trader B. That means Investor A has to buy the shares for $115 each and deliver them to Trader B, who only has to pay $100 per share.

6. Straddles and Strangles

Level of Expertise: Intermediate

With straddles in options trading, investors can profit regardless of the direction the underlying stock or asset makes. In a long straddle, an investor is anticipating higher volatility, so they buy both a call option and a put option at the same time. Short straddles are the opposite–investors sell a call and put at the same time.

Straddles and strangles are used when movement in the underlying asset is expected to be small or neutral.

Let’s look at a hypothetical long straddle. An investor pays $1 for a call contract and $1 for a put contract. Both have strikes of $10. In order for the investor to break even, the stock will have to rise above $12 or fall below $8. This is because we’re taking into account the $2 they spent on the premiums.

In a long strangle, the investor buys a call and put but with different strike prices. This is likely because they believe the stock is more likely to move up than down, or vice versa. In a short strangle, the investor sells a call and put with different strikes.

Here’s an example of a short strangle. An investor sells a call and put on an exchange-traded fund (ETF) for $3 each. The maximum profit the investor can make is $6 — the total from the sales of the call and the put options. The maximum loss the investor can incur is unlimited since the underlying ETF can potentially climb higher forever. Meanwhile, losses would stop when the price hit $0 but still be significant.

7. Cash-Secured Puts

Level of Expertise: Intermediate

The cash-secured put strategy is one that can both provide income and let investors purchase a stock at a lower price than they might have been able to if using a simple market buy order.

Here’s how it works: an investor writes a put option for Miner CC they do not own with a strike price lower than shares are currently trading at. The investor needs to have enough cash in their account to cover the cost of buying 100 shares per contract written, in case the stock trades below the strike price upon expiration (in which case they would be obligated to buy).

This strategy is typically used when the investor has a bullish to neutral outlook on the underlying asset. The option writer receives cheap shares while also holding onto the premium. Alternatively, if the stock trades sideways, the writer will still receive the premium, but no shares.

8. Bull Put Spreads

Level of Expertise: Advanced

A bull put spread involves one long put with a lower strike price and one short put with a higher strike price. Both contracts have the same expiration date and underlying security. This strategy is intended to benefit from a rising stock price. But unlike a regular call option, a bull put spread limits losses and can also profit from time decay.

Let’s say a stock is trading at $150. Trader B buys one put option with a strike of $140 for $3, while selling another put option with a strike of $160 for $4. The maximum profit is $1, or the net earnings from the two options premiums. So $4 minus $3 = $1. The maximum profit can be achieved when the stock price goes above the higher strike, so $160 in this case.

Meanwhile, the maximum loss equals the difference between the two strikes minus the difference of the premiums. So ($160 minus $140 = $20) minus ($4 minus $3 = $1) so $20 minus $1, which equals $19. The maximum loss is achieved if the share price falls below the strike of the put option the investor bought, so $140 in this example.

Recommended: A Guide to Options Spreads

9. Iron Condors

Level of Expertise: Advanced

The iron condor consists of four option legs (two calls and two puts) and is designed to earn a small profit in a low-risk fashion when a stock is thought to have little volatility. Here are the four legs. All four contracts have the same expiration:

1. Buy an out-of-the-money put with a lower strike price

2. Write a put with a strike price closer to the asset’s current price

3. Write an call with a higher strike

4. Buy a call with an even higher out-of-the-money strike.

If an individual makes an iron condor on shares of Widget Maker Inc., the best case scenario for them would be if all the options expire worthless. In that case, the individual would collect the net premium from creating the trade.

Meanwhile, the maximum loss is the difference between the long call and short call strikes, or the long put and short put strikes, after taking into account the premiums from creating the trade.

10. Butterfly Spreads

Level of Expertise: Advanced

A butterfly spread is a combination of a bull spread and a bear spread and can be constructed with either calls or puts. Like the iron condor, the butterfly spread involves four different options legs. This strategy is used when a stock is expected to stay relatively flat until the options expire.

In this example, we’ll look at a long-call butterfly spread. To create a butterfly spread, an investor buys or writes four contracts:

1. Buys one in-the-money call with a lower strike price

2. Writes two at-the-money calls

3. Buys another higher striking out-of-the-money call.

The Takeaway

Options trading strategies offer a way to potentially profit in almost any market situation—whether prices are going up, down, or sideways. The market is complex and highly risky, making it not suitable for everyone, but the guide above lays out different trading strategies based on the level of expertise of the investor.

Investors who are ready to dip their toe into options trading might consider SoFi’s options trading platform, where they’ll have access to a library of educational content about options. Plus, the platform has a user-friendly design.

Pay low fees when you start options trading with SoFi.

Photo credit: iStock/Rockaa
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN20255

Jul

2022

How to Calculate Stock Profit

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

If you’re wondering how to calculate stock profit, it’s simple: Take the original price you paid for the stock and subtract it from the price at which you sold it. So if you paid $50 per share and the stock is now worth $55, your profit would be $5 per share.

If you bought 100 shares of the stock and realized a gain of $5 per share, that would be $500 in profit (not including any trading fees or commissions).

If the stock price has dropped since you bought it, you would subtract the current price from the original price, to arrive at the amount of your loss.

Understanding the implications of those gains (or losses) in terms of dollar amounts as well as percentages — and what to do next — is another matter. In most cases you’ll owe taxes on your gains, and/or you can use losses to offset gains. But when and how is where investors need to pay attention.

How Do You Calculate Stock Profit?

Given the history of the stock market, and the constant price fluctuations of almost every company, most investors should expect the price of the shares they buy to change over time. The question is: Is the change positive (a profit) or negative (a loss).

Realized Gains vs Unrealized Gains

Another question: Are those gains/losses realized or unrealized?

When a stock in your portfolio gains or loses value, but you hold onto it, that is considered an unrealized gain or loss. You wouldn’t pay additional trading fees and you wouldn’t (yet) face any tax implications because you haven’t actually sold the shares.

If you sell the shares, that’s when you realize (or take) the actual cash profit or loss in your account. At that point trading fees and taxes would likely come into play.

Formula to Calculate Percentage Gain or Loss of Stocks

Calculating stock profit can be done as a dollar amount or as a percentage change. The same is true of losses. While knowing the dollar amount that you’ve gained or lost is relevant for long-term planning and tax purposes, calculating the percentage change will help investors gauge whether one stock had good return when compared with another.

Percentage change = (Price sold – Purchase price) / (Purchase price) x 100

The important thing about this formula is to always have the purchase price in the denominator. That way the percentage change in the shares is always divided by what an investor paid for them.

Calculating Stock Profit Example

Here’s a hypothetical example using the formula above, but incorporating the number of shares an investor may hold. This will give the total dollar profit as well as the percentage move.

1. Let’s say an investor owns 100 shares of Stock A, which they bought at $20 a share for a total of $2,000.

2. The investor sells all of their shares when the stock is trading at $23, for $2,300.

3. Ignoring any potential investment fees, commissions, or taxes in this hypothetical example, the investor would see a gain of $3 per share or $300 in profit.

4. What’s the percentage gain? ($23 – $20) / $20 = 0.15 x 100 = 15 or a 15% gain.

Calculating Stock Loss Example

Now let’s look at an example where Stock A declines.

1. Here, an investor owns 100 shares of Stock B, which they bought at $20.

2. This time, the investor sells all 100 shares at $18.

3. This means, the investor has to subtract $18 from $20 to get a $2 loss per share.

4. What’s the percentage loss? ($20 – $18) / $20 = 0.10 x 100 = 10, or a 10% loss.

If you’re wondering how the returns you’re seeing compare with the average stock return, that number has historically hovered around 9%, when considering the market as a whole, over time.

And if you’re wondering about how to calculate stock profit when shorting stocks, that is a more complex strategy that requires careful understanding.

Calculating Percentage Change in Index Funds and Indices

As you may know, index funds are mutual funds that track a specific market index, which means they include the companies or securities in that index. An S&P 500 index fund mirrors the performance of the companies in the S&P 500 Index.

How to calculate the percentage change of your shares in an index fund? You can approach it the same way you would when you calculate profit or loss from a stock.

You can also calculate the difference between the percentage change of the index itself, between the date you purchased shares of the related index fund and sold them. Here’s an example, using the S&P 500 Index.

Let’s say the index was at 4,500 when you bought shares of a related index fund, and at 4,650 when you sold your shares. The same formula applies:

4,650 – 4,500 / 4,650 = 0.032 x 100 equals a 3.2% gain in the index, and therefore the gain in your share price would be similar. But because you cannot invest in an index, only in funds that track the index, it’s important to calculate index fund returns separately.

Importance of Calculating Stock Profit

Why is calculating stock profit (and loss) important? It’s an investing fundamental: You need to know what you’ve earned, i.e. what your gains and losses are, because your returns can impact:

• Taxes owed

• Your overall tax strategy (more on that below)

• Your asset allocation

• Your long-term financial picture

💡 Recommended: How to Buy Fractional Shares

How Are You Taxed on Profit From a Stock?

You would start by subtracting the cost basis from the total proceeds to calculate what you’ve earned from a sale. If the proceeds are greater than the cost basis, you’ve made a profit, also known as a capital gain. At this point, the government will take a slice of the pie — you’ll owe taxes on any capital gains you make.

Capital gains tax rates are the rates at which you’re taxed on the profit from selling your stock (in addition to other investments you may hold such as bonds and real estate). You are only taxed on a stock when you sell and realize a gain, and then you are taxed on net gain, which is the difference between your gains and losses.

You can deduct capital losses from your gains every year. So if some stocks sell for a profit, while others sell for an equal loss, your net gain could be zero, and you’ll owe no taxes on these stocks.

Short-Term vs Long-Term Capital Gains Tax

There are two types of capital gains tax that might apply to you: short-term and long-term investment capital gains tax. If you sell a stock you’ve held for less than a year for a profit, you realize a short-term capital gain.

If you sell a stock you’ve held for more than a year and profit on the sale, you realize a long-term capital gain. Short-term capital gain tax rates can be significantly higher than long-term rates. These rates are pegged to your tax bracket, and they are taxed as regular income.

So, if your income lands you in the highest tax bracket, you will likely pay a short-term capital gains rate equal to the highest income tax rate — which is quite a bit higher than the highest long-term capital gains rate.

Long-term capital gains, on the other hand, are given preferential tax treatment. Depending on your income and your filing status, you could pay 0%, 15%, or a maximum of 20% on gains from investments you’ve held for more than a year.

Investors may choose to hold onto stocks for a year or more to take advantage of these preferential rates and avoid the higher taxes that may result from the buying and selling of stocks inside a year.

When Capital Gains Tax Doesn’t Apply

There are a few instances when you don’t have to pay capital gains tax on the profits you make from selling stock, namely inside of retirement accounts.

The government wants you to save for retirement, so they encourage people to set up certain tax-advantaged investment accounts, including 401(k)s and/or opening an individual retirement account.

You fund tax-deferred accounts such as 401(k)s and traditional IRAs with pre-tax dollars, which may help lower your taxable income in the year you make a contribution. You can then buy and sell stocks inside the accounts without incurring any capital gains tax.

These tax-deferred returns can give your savings an extra boost, potentially helping it grow faster than it would in a regular brokerage account. As tax-deferred returns are reinvested, investors are able to take greater advantage of the magic of compounding interest — the returns investors earn on their returns.

Tax-deferred accounts don’t allow you to escape taxes entirely, however, when you make qualified withdrawals after age 59 ½, you are taxed at your regular income tax rate. Roth accounts, such as Roth IRAs function slightly differently. You don’t escape taxes here either, since you fund these accounts with after-tax dollars.

Then you can also buy and sell stocks inside a Roth account where any gains grow tax free. Once again, you won’t owe capital gains on profit you make inside the account. And in the case of a Roth, when you make withdrawals at age 59 ½ you won’t owe any income tax either.

Understanding Capital Losses

Now, let’s take a closer look at capital losses. You may be wondering why it would ever make sense to take a capital loss. However, capital losses could be an important tool to help you manage your taxes, thanks to a strategy called tax-loss harvesting.

Capital losses can be used to offset gains from the sale of other stocks. Say you sold Stock A for a profit of $15 and Stock C from another company for a loss of $10. The resulting taxable amount is now $5, or $15 minus $10.

In some cases, total losses will be greater than total gains (i.e. a net capital loss). When this happens, you may be able to deduct excess capital losses against other income. If an investor has an overall net capital loss for the year, they can deduct up to $3,000 against other kinds of income — including ordinary and interest income.

The amount of losses you can deduct in a given year is limited to $3,000. However, additional losses can be rolled over and deducted on the following year’s taxes.

There are other limitations with claiming capital losses. The wash-sale rule, for example, prohibits claiming a full capital loss after selling securities at a loss and then buying “substantially identical” stocks within a 30-day period.

The rule essentially closes a loophole, preventing investors from selling a stock at a loss only to immediately buy the same security again, leaving their portfolio essentially unchanged while claiming a tax benefit.

Another way investors try to defer taxes is through automated tax-loss harvesting, or strategically taking some losses in order to offset taxable profits from another investment.

Other Income From Stocks

You may receive income from some stock holdings in the form of dividends, which are unrelated to the sale of the stock. A dividend is a distribution of a portion of a company’s profits to a certain class of its shareholders. Dividends may be issued in the form of cash or additional shares of stock.

While dividends represent profit from a stock, they are not capital gains and therefore fall into a different tax category. (Different types of investment income are taxed in different ways.) Dividends can be classified as either qualified or ordinary dividends, which are taxed at different rates. Ordinary dividends are taxed at regular income tax rates.

Qualified dividends that meet certain requirements are subject to the preferential capital gains tax rates. Taxpayers are responsible for identifying the type of dividends they receive and reporting that income on Form 1099-DIV.

Brokerage Fees or Commissions

Then there are brokerage account fees or commissions that you might have paid when you bought the stock. You may have already forgotten about these costs, but they do have an effect on your investment’s profitability and, depending on the amounts involved, these fees could make a profitable trade unprofitable.

Tally all the fees you paid and subtract that sum from your profit to find out what your net gain was. Note that your brokerage account may do these calculations for you, but you might want to know how to do them yourself to have a better understanding of how the process works.

Some brokerage firms offer zero commission trading, but they may be engaging in a practice called payment for order flow, where your orders are sent to third parties in order to be executed.

When to Consider Selling a Stock

There are a number of reasons investors may choose to sell their stocks, especially when they may earn a profit. First, they may need the money to meet a personal goal, like making a down payment on a home or buying a new car. Investors with retirement accounts may start to liquidate assets in their accounts once they retire and need to make withdrawals.

Investors may also choose to sell stocks that have appreciated considerably. Stocks that have made significant gains can shift the asset allocation inside an investor’s portfolio. The investor may want to sell stocks and buy other investments to rebalance the portfolio, bringing it back in line with their goals, risk tolerance, and time horizon.

This strategy may give investors the opportunity to sell high and buy low, using appreciated stock to buy new, potentially cheaper, investments. That said, investors might want to avoid trying to time the market, buying and selling based on an attempt to predict future price movements. It’s hard to know what the market or any given stock will do in the future.

Sometimes investors may decide that buying a certain stock was a mistake. It may not be the right match for their goals or risk tolerance, for example. In this case, they may decide to sell it, even if it means incurring a loss.

The Takeaway

Assuming a stock’s price is higher when you sell it versus when you bought it, learning how to calculate stock profit is pretty easy. You subtract the original purchase price from the price at which you sold it. (If the selling price is lower than the purchase price, of course, you’d see a loss.)

It’s important to calculate stock profits and losses because it can impact your taxes. If you realize a gain, you may owe capital gains tax; if you realize a loss, you may be able to use the loss to offset your gains. Of course, if you’re trading stocks within an IRA, Roth IRA, or 401(k), you avoid any tax consequences.

It’s fundamental tactics like these that can help give you confidence as an investor. When you open an Active Invest account with SoFi Invest, you can start trading stocks right away, as well as ETFs, fractional shares, IPO shares, and more.

Start your stock portfolio with SoFi today.

FAQ

Why is it important to calculate stock profit?

Investing in stocks comes with a certain amount of risk. It may help you to know what your gains and losses are so that you can gauge the winners and losers in your portfolio. Calculating stock profit also helps with tax planning and portfolio rebalancing.

How can you calculate stock profit?

Calculating the dollar amount is relatively simple (you subtract the final selling price from the original purchase price, or vice versa). The formula for determining the percentage change is also straightforward:

(Price sold – Purchase price) / (Purchase price) x 100 = Percentage change

What is an example of calculating stock profit?

An investor owns 100 shares of Stock X, which they bought at $50 a share for a total of $5,000. The price rises to $55, a gain of $5, and the investor sells all their shares for a $500 profit ($5,500 total), excluding commissions, taxes, fees.

What’s the percentage gain? ($55 – $50) / $50 = 0.10 x 100 = 10 or a 10% gain.

Jul

2022

How to Invest in the Metaverse: A Beginner’s Guide

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

The metaverse refers to an amalgamation of digital and virtual worlds where people will be able to collaborate, socialize, shop, and even work and learn in 3D spaces. It’s billed as a more embodied or immersive way of experiencing life on the internet, and it’s tied to Web 3.0 — the next iteration of the world wide web.

The metaverse includes cryptocurrencies, video games, Web3 platforms, and much more. And with established tech companies creating countless new products and possibilities, you can even invest in the metaverse. True, the metaverse is an evolving state of technology + reality. It’s really just getting started. But for those who want to seize the moment and invest in the metaverse in its early stages, here’s what you need to know.

Birth of the Metaverse

The concept of the metaverse can be difficult to wrap your head around, and yet in many ways it’s already here. There are numerous aspects of modern life that can be considered a part of the metaverse, including virtual infrastructure, multi-player video games, non-fungible tokens (NFTs), cryptocurrencies, and more.

In fact, it’s easier to think of the metaverse in more established terms like cyberspace or Web 3.0, which describe how existing technologies are evolving in new directions. Cyberspace helped define the emergence of interconnected digital spaces and devices. And Web 3.0 is now emerging as the term of art for where the internet is headed: more experiential, decentralized, and open.

Recommended: Web 3.0 Guide for Beginners

History of the Metaverse

You could argue that the origins of the metaverse date back to the creation of the first three-dimensional image in the 1830s — a primitive system that helped pave the way for stereoscopes and even today’s VR headsets.

The idea of 3D images combined with sensory experiences led to the first virtual reality products in the 1950s. Decades later, many remember when Google unveiled “Google Glass,” which never took off, but could also be thought of as an attempt to bring the metaverse to the masses.

As a result of nearly a century of digital innovation — including science fiction stories and movies that inspired real life technologies — augmented and virtual reality technologies are now fairly common. And many companies are hard at work intertwining virtual worlds with the physical world. That’s helping to fuel new opportunities in the metaverse, and potentially a trillion-dollar market by the end of the decade.

As such, it’s easy to see why investors may be interested in exploring new opportunities in order to get in on the ground floor and invest in the metaverse now.

3 Ways to Invest in the Metaverse

If you’re ready to put your money to work and wondering, How can I invest in the metaverse?, there are a few avenues to consider — and they are similar to investing in any other industry:

1. Invest in companies or industries where business growth is related to the metaverse.

2. Invest in metaverse cryptocurrencies.

3. Invest in stocks and funds doing business in the metaverse.

For now, investors may want to consider investing in companies or industries that are focused on expanding or innovating products, technologies, and services that relate to the metaverse. In addition, there may be digital assets and currencies that will also grow as the metaverse expands.

Investors can also explore stocks of companies that are doing business in the metaverse as well as mutual funds and exchange-traded funds (ETFs) related to the metaverse,

Of course, the same caveats apply when you invest in the metaverse as when you invest in any other sector. It pays to do your research, to decide where metaverse investments fit into the rest of your financial portfolio, and to get expert guidance when needed.

Indeed, when you invest in the metaverse, even more caution may be required, given that these technologies and industries don’t have long track records.

Are There Metaverse ETFs?

Yes, there are a number of metaverse ETFs that are already available to investors.

Generally speaking, and as with many investments in the metaverse space, these ETFs offer exposure to companies working directly on technologies related to the metaverse, or in adjacent industries. Think: fintech, gaming, social media, tech giants, and similar companies.

Many of these ETFs are also being launched by established financial institutions, which can be a sign of a broader trend that investors may want to keep an eye on.

5 Metaverse Stocks to Watch For

If metaverse ETFs aren’t your preferred investment vehicle, you can buy some specific, individual metaverse stocks. Or, at least stocks that are metaverse related. Below are five of the biggest companies in the metaverse space. That doesn’t mean you should add them to your investment portfolio, but if you’re interested in the metaverse and the tech that powers it, you may want to keep an eye on these stocks:

1. Meta

With its new moniker “Meta,” the parent company of Facebook, Instagram, and Oculus is considered a leading metaverse-focused corporation. Meta (META) is dedicating a lot of resources to the metaverse, incorporating virtual reality, augmented reality, and more into its Oculus headsets and smart glasses. It even rolled out digital workrooms that allow users to participate in digital meetings using VR headsets. Meta is going all-in on the metaverse.

2. Microsoft

Microsoft (MSFT), the global software manufacturer, also has a large gaming division with its Xbox console and has become a leader in the metaverse. A big part of Microsoft’s activity in the metaverse space has to do with gaming and building virtual worlds, as it has been acquiring numerous video game studios (including Activision Blizzard and Bethesda, makers of popular IPs like “Call of Duty” and “Fallout,” among others) in recent years.

3. NVIDIA

NVIDIA (NVDA), a semiconductor producer known for inventing the GPU, is creating what may be considered the backbone of the metaverse with its powerful processors and chips. Plus, NVIDIA also launched the NVIDIA Omniverse, which is a simulation and collaborative platform in the existing metaverse.

4. Autodesk

Autodesk (ADSK) makes software that’s used by engineers and architects to design buildings and real estate projects. Now, it’s being used to create similar digital projects in the metaverse.

5. Roblox

Roblox (RBLX) is a video game ecosystem, where users can design their own characters, content, and games. In a sense, Roblox is a more established player in that it has already created a metaverse, with millions of people engaging in virtual experiences and creating their own virtual content. Thus may be appealing to investors in this space.

4 Metaverse Cryptocurrencies to Watch For

Similarly, here are some metaverse cryptocurrencies that may catch the eye of an enterprising metaverse investor. These are the largest metaverse cryptocurrencies by market cap, as of June 10, 2022:

1. The Sandbox (SAND)

SAND is the native token of The Sandbox platform, which is something of play-to-earn virtual game that is backed by gaming brands such as Atari. Participants can use SAND tokens to create NFTs on the platform, which is built on the Ethereum blockchain.

2. Theta Network (THETA)

The Theta Network aims to decentralize streaming services — it’s a unique blockchain that allows users to build apps for streaming, broadcasts, and more. For metaverse crypto investment outside of the Ethereum blockchain, Theta may be of interest to some investors.

3. Axie Infinity (AXS)

Axie Infinity is another play-to-earn metaverse game on the Ethereum blockchain which allows players to create little virtual creatures called Axies. They can also buy and exchange land plots, NFTs, and more in the game. AXS is the network’s native coin, which players can earn by playing.

4. Enjin Coin (ENJ)

Enjin Coin (ENJ) is a crypto that was created by Enjin, a software company that allows users to create and trade virtual goods like NFTs on the Ethereum blockchain. The coin, in effect, makes it easier to conduct in-game or in-virtual-world transactions, making it easy to see why it would be appealing to metaverse participants and investors.

The Takeaway

The metaverse, with its rapidly expanding virtual worlds and digital assets and NBDB technologies, is just beginning to take off. Yet so many established tech companies are already in this space, there are numerous opportunities for investors to consider, including mutual funds, exchange traded funds (ETFs), stocks, cryptocurrencies, and more.

Still, investing in the metaverse has some very clear and obvious risks because this sector is so new. It’s difficult to predict which products, services, and virtual currencies might succeed, and where the inevitable hurdles for this nascent industry will arise.

If you’re keen to get started, consider opening an investment account with SoFi Invest. From SoFi’s secure app, you can trade stocks, ETFs, IPOs, and more right from your phone or computer. And SoFi members are entitled to complimentary access to financial professionals who can help answer your investing questions.

Check out SoFi Invest today.

Photo credit: iStock/Prostock-Studio

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

SOIN0522006

A Beginners Guide to Index Fund Investing

What Are Index Funds?

How Do Index Funds Work?

Index Investing vs Active Investing

Growth of Index Investing

Popular Indexes Include

Popular Index Funds Include

Potential Advantages of Index Investing

Can Be Easier to Manage

Lower Cost of Entry for Multiple Stocks

Portfolio Diversification

Index Investing Is Fairly Passive

Potential Disadvantages of Index Investing

Index Funds Follow the Market

Index Funds Don’t Directly Follow Indexes

Index Investing Is Best as a Long-Term Strategy

Choosing an Index to Invest in

Index Funds Are Weighted

Less Flexibility

How to Get Started With Index Investing

Alternatives to Index Investing

Building Your Portfolio

FAQ

What happens when you invest in an index?

Are indexes safe investments?

What does index mean in investing?

Should You Open a Joint Brokerage Account?

Investing Together

What Is a Joint Brokerage Account?

Advantages of Joint Brokerage Accounts for Couples

Single Investment Manager

Combined Resources

Simplified Estate Planning

Challenges of Joint Brokerage Accounts for Couples

Transparency and Trust

Breaking Up

Tax Issues

Things to Know About Joint Brokerage Accounts

Ownership

Death of Owner

Probate Court

Tips for Opening a Joint Brokerage Account

The Takeaway

FAQ

Can couples open a joint brokerage account?

What are the benefits for couples opening a joint brokerage account?

How can you start a joint brokerage account?

10 Options Trading Strategies for Beginners

10 Important Options Trading Strategies for Beginners

1. Long Calls

2. Long Puts

3. Covered Calls

4. Short Puts

5. Short Calls or Naked Calls

6. Straddles and Strangles

7. Cash-Secured Puts

8. Bull Put Spreads

9. Iron Condors

10. Butterfly Spreads

The Takeaway

How to Calculate Stock Profit

How Do You Calculate Stock Profit?

Realized Gains vs Unrealized Gains

Formula to Calculate Percentage Gain or Loss of Stocks

Calculating Stock Profit Example

Calculating Stock Loss Example

Calculating Percentage Change in Index Funds and Indices

Importance of Calculating Stock Profit

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How Are You Taxed on Profit From a Stock?

Short-Term vs Long-Term Capital Gains Tax

When Capital Gains Tax Doesn’t Apply

Understanding Capital Losses

Other Income From Stocks

Brokerage Fees or Commissions

When to Consider Selling a Stock

The Takeaway

FAQ

Why is it important to calculate stock profit?

Student Loan
Refinancing

Personal
Loans

Online
Investments